A home equity line of credit loan is a line of credit that is secured against real estate. The amount of the credit line is dependent upon the amount of equity in the subject property and the lender's guidelines. Each lender has its own specific guidelines and limitations. Lines of credit are typically designed for borrowers who intend to pay back the borrowed funds within a short period of time. Equity lines of credit are processed and underwritten similar to traditional mortgages; however, lender guidelines vary widely.
Home equity lines differ from traditional mortgages that provide funds up front, then require repayments of principal and interest each month. With a home equity line, a borrower may draw against any available credit on the line while continuing to make monthly payments during the "draw period." The draw period usually lasts 15 years. At the end of that time, the borrower has a set number of years to repay the remaining balance in full without further draws. The "repayment period" is typically 15 years.
Interest on home equity lines accrues similar to interest on credit cards and payments are based on payment factors.
